Need A Retirement Starter Kit? This Might Help

With new accounts called myRAs, the government would protect workers' savings from losses.

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Originally published on February 3, 2014 1:56 pm

Financial planners all say: The sooner you start saving, the better off you'll be in retirement.

But that advice often goes unheeded by young workers focused on paying down student debt and car loans. And even for those who can afford to set aside a little cash, investing can seem complicated and risky.

In his State of the Union address Tuesday, President Obama said he's got a way to fix all of that. He calls it myRA — a difficult-to-say-aloud name that is supposed to get people thinking about "my retirement account."

This new way of saving would be different from a traditional tax-deferred individual retirement account, or IRA. For one thing, workers can't lose money in myRAs; the government would protect the principal and help savings grow a bit faster than inflation.

Participating employers could help workers steer portions of their paychecks into the retirement accounts through automatic deductions. But they would face few costs because they would not administer the accounts.

The White House says about half of all workers do not have access to employer-sponsored retirement plans, such as 401(k) plans. The myRAs are aimed at those left-out workers.

"I want more people to have the chance to save for retirement through their hard work. And this is just one step that we can take to help more people do that," Obama said Wednesday while visiting the U.S. Steel Irvin Plant in West Mifflin, Penn., southeast of Pittsburgh.

At the mill, Obama signed an order directing the Treasury Department to create the accounts, which would be portable as workers move from one employer to another. And myRAs would offer a safety level similar to a traditional, government-backed savings bond.

The White House said the savings plans would be available to households with incomes below $191,000. The initial investment could be as low as $25, and subsequent savings could be in amounts as small as $5. Savers would not get hit with a tax penalty if they had to withdraw the money for an emergency.

The White House said the accounts would offer the same variable interest-rate return as federal employees get when they enroll in the Thrift Savings Plan Government Securities Investment Fund. That fund had an average annual return of 3.61 percent from 2003 through 2012.

Once a saver had accumulated $15,000 in an account, the money would have to be rolled over into a private-sector Roth IRA. The money could then by moved into other types of investments that offer higher returns.

Monica D'Angelo, 22, a business student at Duquesne University in Pittsburgh, said she is looking forward to the myRA rollout later this year.

"Most people I know are pretty overwhelmed by student debt," D'Angelo said. It's hard to focus on long-term savings without a push from employers, government and parents, she said.

D'Angleo got that push from her mother. So at age 20, she opened an IRA and put aside a little money from a summer job. "After I graduate in May and start working, I'll want to contribute again," she said.

Having the option of automatic paycheck deductions for a myRA would be a big plus, she said. "The way companies have been moving away from offering benefits, I think it helps to have the government step in."

Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, said myRAs may encourage small businesses that have never offered retirement plans to begin to do so.

A myRA provides an "automatic payroll deduction with great ease to the employer," and at an investment level low enough that "the vast majority say they could afford to be saving," Salisbury said.

But some experts are skeptical, given how low participation rates are for existing IRAs.

Greg McBride, a senior analyst with the consumer finance website Bankrate.com, said history suggests many people are reluctant to sign up for any voluntary program that reduces take-home pay.

"If you wait for people to sign up on their own volition and check the box as to how much they're going to contribute, guess what? They don't do it," he said.